Electricity Market Reform: so what’s new?

policypressblog

2 years ago

Keith Baker and David Toke

by Keith Baker and David Toke

In 2013, Britain’s electricity markets were reorganized through Electricity Market Reform (EMR). The programme of EMR sought to prioritise the public goods of energy security and climate change mitigation. This marked a shift away from free markets towards a greater role for state direction in the energy market.

In our Policy & Politics article entitled Electricity Market Reform: so what’s new? we use grid group cultural theory to explain changes in the regulatory regime under EMR. Cultural theory claims that regulatory actions result from more cultural biases: individualism, hierarchy, egalitarianism and fatalism. Individualists privilege free markets, hierarchs privilege expert and government authority, egalitarians emphasise equity, the environment and community lead decision-making and fatalists are resigned to carious fate. We claim that EMR represents an incomplete shift from ‘individualist’ to ‘hierarchical’ approaches to the regulation of the British energy market.

We argue that conflicts between the different frames explain the institutional design of EMR. Whilst the egalitarian bias is implicit in the drive for decarbonisation and support for renewables, a hierarchical bias and panic over an electricity shortage is driving the government towards nuclear power. However, the British government continues to persist with a preference for commercial markets. As such, government tries to work through incentives but reserves the right to distort the market through these incentives. This set-up is very distinct from the old arrangements under the nationalised electricity system. It is also different from the centralised decision-making desired by some supporters of nuclear power.

We conclude by suggesting that the British government has come to see electricity as a public good rather than the production of a tradable commodity at the cheapest short-term consumer price. This has produced some retreat from marketisation and justified increased government intervention. The framing of this shift from ‘individualistic’ to hierarchical management of the electricity industry helps us to categorise and define the changes. It also helps to understand the limits to this process. Whilst egalitarian objectives can be reconciled with individualism, trying to combine hierarchy with individualism in the same policy zone is more problematic. Policymakers must fit the cultural framing to suit their preferred (public good) outcomes rather than expect a defined public good to emerge from a preferred mix of cultural bias.

David Toke is a Reader at the University of Aberdeen. Keith Baker is Assistant Professor of Political Science at Oregon State University, US.